Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices. Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly You can assume that x is larger than y. Which option does he prefer? The option with the highest future value Option 1 because the interest rate is higher Option 2 because his funds compound quarterly We cannot compare these options because one compounds quarterly and one annually
Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices. Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly You can assume that x is larger than y. Which option does he prefer? The option with the highest future value Option 1 because the interest rate is higher Option 2 because his funds compound quarterly We cannot compare these options because one compounds quarterly and one annually
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices.
Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually
Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly
You can assume that x is larger than y.
Which option does he prefer?
The option with the highest future value
Option 1 because the interest rate is higher
Option 2 because his funds compound quarterly
We cannot compare these options because one compounds quarterly and one annually](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0438aa99-1b70-42ff-a94b-751b273cc074%2F7733ba63-a406-4ef0-aed8-715ffbcd83aa%2F63wu8no_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices.
Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually
Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly
You can assume that x is larger than y.
Which option does he prefer?
The option with the highest future value
Option 1 because the interest rate is higher
Option 2 because his funds compound quarterly
We cannot compare these options because one compounds quarterly and one annually
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